Investment managers with a combined $8 trillion in assets under management are urging the banks in their portfolios to eliminate deforestation from their lending and investment practices. The new guidelines call for banks to assess their ties to deforestation, set policies to reduce harm, and track their progress.
The Institutional Investors Group on Climate Change (IIGCC), working with the Finance Sector Deforestation Action (FSDA) initiative, says it wants banks to make their “best efforts” to eliminate deforestation caused by high-risk commodities no later than the end of 2025.
Banks expose themselves to risk by continuing to finance companies involved in deforestation associated with the production of commodities such as palm oil, soy and livestock, according to a report published Sept. 3 by the IIGCC and FSDA. These risks include damage to infrastructure and other assets from increasingly frequent and severe climate-driven disasters and market shifts toward sustainability.
Today, deforestation accounts for approximately 11% of global carbon emissions.
Experts have praised the initiative for laying out more detail than previous investor-led attempts to stop funding deforestation, but warn that the report’s guidelines for banks, which are voluntary in nature, may not bring real change without stronger rules in place.
“In theory, there should be conditions on any future financing. In reality, I’m a bit more skeptical,” Alex Helan, a senior researcher on forests and finance at the U.S.-based NGO Rainforest Action Network, told Mongabay by phone. “If these investors essentially continue to have a very similar portfolio … that would be a sign that it’s just lofty language with a bit more detail.”
The guidelines urge banks to publicly disclose policies to help investors track improvements. However, that allows companies to self-report on their progress and doesn’t require open and public access to traceability data.
Until financial regulatory instruments are introduced with strict controls, Helan said, real-world impacts will be limited.
“Voluntary commitments massively underperform,” Helan told Mongabay. “Even some of the groups in the private sector are saying that they need greater guidance from regulators.”
Banner image: Commodities such as corn, cattle and soy are major drivers of deforestation yet receive heavy financing from banks. Image © Marizilda Cruppe/Greenpeace.
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